Economic recovery doesn't help all

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In an era with noteworthy economic growth, why does it seem so unsatisfying? Why do numerous broad-based business benchmarks point upward – just as so many people and companies feel so low?

Veteran Orange County banker Brian Horton at
First Enterprise Bank lives this dichotomy daily, as he deals with a diverse clientele of small business leaders.

He's blunt about his thought as to why there are such mixed emotions within the local business community about the overall improving economic results: “There are 25 percent of the businesses, and they're top performers. And the other 75 percent? Many are barely treading water.”

My Big Orange Index – a collection of three dozen benchmarks for the Orange County economy –
shows that as an aggregate, the local economy is picking up steam.

In the third quarter, the overall Big Orange Index posted its 12th consecutive advance and its biggest quarterly upswing in nearly seven years.

On a yearly basis, The Big O tells me the local economy is growing at a 4.2 percent pace – the quickest expansion in a year. This growth puts my marker for local economic oomph back at 2008 levels.

Even by industry, signs point to a broad-based recovery. All six subindexes that comprise the Big O were up for the quarter – third consecutive “all in” from this sector-by-sector review.

That means local store owners come to the holiday shopping season off their ninth consecutive gain. One good reason: The Big O's measure of consumer confidence had its fourth consecutive advance – and 10th gain in the past 11 quarters. Real estate is a big reason for local optimism. Its Big O Index slice rose for the third straight quarter in its biggest advance in The Big O's database dating to 1988.

Now the Big O does hint as to why bosses have frequent angst attacks. The Big O's Boss Index – measuring economic items key to local decision makers – had its 12th straight gain in the summer quarter. Yet this increase was the smallest advance in this winning streak.

Is this a sign of a recovery that's running out of steam? Or do bosses sense other problems ahead?

Well, Horton's niche – banking, an industry supposedly highly sensitive to economic change – is enjoying a renaissance. By Big O calculations, for example, the local bill-paying rate is at its best level since 2008 as the pace of Orange County foreclosures and bankruptcies falls along with unemployment.

“I'm optimistic,” Horton says. “I think things are better than what people think they are. I just think some people are just too negative.”

LENDING BOOM

Horton, an Orange County native whose family first came here in the 1850s, has been in the local banking business for nearly three decades

He's keenly aware of the local economy's habit of boom then bust. Yet he believes this past cycle was very different, and its resulting uneven recovery makes banking extra challenging. As Horton put it, “In the past, the rising tide lifted all boats. Not this time.”

This varied performance, in Horton's eyes, is due to both an economic recovery that has not yet touched all corners of the business spectrum and the reality that not every manager or business owner is capable of tackling today's economic challenges.

Some business leaders didn't see the downturn early enough, Horton says. Their businesses, in many cases, are “still digging out of holes” created by the Great Recession.

Other companies had better strategic plans and were able to make tough, early course corrections to dampen the impact of the business downtown.

“It may sound corny,” Horton says. “But the manager who really understands his business, these guys are the successful ones.”

First Enterprise, co-founded by Horton in 2006, emerged from the downdraft virtually unscathed. The bank has never had a loan loss – not a track record many Orange County bankers can brag about.

These are relatively good times for local lenders, as businesses start to look for fresh funds for expansion – and bills are getting paid with more regularity.

The Big O found in the third quarter that foreclosures in Orange County, as tracked by Experian, dropped to a rate last seen in 2008. Southern California bankruptcies have fallen to a three-year low. Not so coincidentally, I'm sure, one measure of local enthusiasm for lending – DataQuick's estimate of new Orange County real estate loans – shows the number of mortgages made in the past year at a five-year high.

First Enterprise has grown its lending 50 percent in a year. Though, as Horton notes, a good chunk of that loan growth is added borrowing by existing customers. And one challenge for First Enterprise today – and a sign of a recovering economy – is that it's getting hard to win new business.

“It's very competitive,” he says. “It's a good time to be borrowing.”

MAXED OUT

Astro-Tek, an Anaheim maker of parts and support items for the aerospace industry, is the type of nimble company that Horton's bank likes to bet on.

This company started in 2006 when its founder, Gary Goldner, left a firm in a similar metals manufacturing niche to try out his own ideas. Astro-Tek switched to First Enterprise in 2008 when it was the only bank that would lend to Goldner's operation.

Since inception, Astro-Tek has growth fast – from four employees to 60 and from a factory with 2,500 square feet of space to a newly expanded production facility with 43,000 square feet.

“I have a heck of team of employees,” says Goldner, deflecting much of the credit for what would be remarkable growth in the best of times – but accomplished in a painful slump for factory work.

Goldner says his growth formula is simple. To better serve his many customers with a cost-cutting mindset, he's willing to trim his price list and aggressively fight for the low bid.

“To be successful, I have to keep work on my floor,” Goldner says. At this moment, that strategy has been so successful that his factory is “maxed out” – running two full shifts' worth of production.

“It hasn't been easy,” Goldner admits.

The economy hasn't been kind to much of his industry – and looming federal defense cuts don't make the broad outlook brighter.

Plus, it's challenging to run a manufacturing operation competing on price in a high-cost region like Orange County. Factories making so-called “durable goods” – pricier, longer-lasting items – averaged 112,000 workers countywide in the past year. Yes, that's the highest level in three years – but the industry is also one-quarter smaller than it was in 1990.

“It's tough to make money in Orange County,” says Goldner, repeating many of the complaints of his factory peers about local hurdles to expanded profitability – costly labor, facilities and regulations. “But, I love Orange County. This is the place to be. Right in the center of my customers and demand.”

Ah, another love-hate relationship with the local economy.

But The Big O will tell you, lately the business climate's been too hot to hate for most folks.

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